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Disinvestment: A daunting task
Wed, 6 Aug Pre-Open

In the Union Budget 2014-2015, the Finance Minister Mr. Arun Jaitley has set up some ambitious targets. One of these is the fiscal deficit target of 3.6% by 2016. Disinvestment is one of the tools the Government intends to use to achieve this. And as market sentiments remain strong, the Government is likely to play on this theme very soon.

The target for disinvestment this year has been set at Rs 584 bn. And thus, a lot of companies such as Oil and Natural Gas Corporation Ltd. (ONGC), Coal India and Steel Authority of India (SAIL), to mention a few whose business is related to rich natural resources will be on the offer. While the Government may be relatively more successful in its disinvestment plans as compared to past years, it still remains a daunting task. Consider this. A lot of these companies are operating in the regulated sectors such as oil and gas, coal and power sector. Poor regulations in the sector have impacted the performance and valuations of these companies over the years. With four months already past us, the Government has very little window of time to implement reforms to ensure fair valuations of a lot of these companies. As such, it is quite likely that stakes in these companies will not be divested at right prices.

And this is not a matter that should be taken lightly. As an article in Business Standard suggests, one of the prime reasons why UPA Government lost in the elections was the mess up in the allocation of resources of national importance. The country has paid a huge price for lack of fairness in coal block allocations and 2G spectrum allocations. Hence, as the Government prepares for big disinvestment plan, it should try to sort out the operational and regulatory issues with each of these companies. To investors also, we would suggest that once these PSU issues hit the market, they should shut the noise, assess each issue individually and ensure that they are being offered at a fair price.

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